An assessment of the UK pension buy-out/buy in market as of July 2022 from James Mullins , a partner of Hymans Robertson

1. Pension PlayPen
Opportunities in the
buy-in and buy-out
market
James Mullins
19 July 2022

2. 2
Total value of UK risk transfer market
£0bn
£50bn
£100bn
£150bn
£200bn
£250bn
£300bn
£350bn
Buy-out Buy-in Longevity swap
Credit crisis
Brexit
COVID-19
Solvency II
-ve rates

3. 3
UK risk transfer market, by year
£0bn
£10bn
£20bn
£30bn
£40bn
£50bn
£60bn
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Buy-out Buy-in Longevity swap

4. 4
Buy-in insurers and appetite
Deferreds? <£50m £50m - £100m £100m - £0.5bn £0.5bn - £2bn >£2bn

5. 5
Attractive pricing – pensioners
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
Buy-in
yield
less
gilt
yield
(%
p.a.)
Switch
from
LIBOR
to
SONIA
swap
additions
as
at
31
August
2021
More
attractive
pricing

6. 6
Attractive pricing – deferred members
-1.4%
-1.2%
-1.0%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
0.2%
Buy-in
yield
less
gilt
yield
(%
p.a.)
Switch
from
LIBOR
to
SONIA
swap
additions
as
at
31
August
2021
More
attractive
pricing

7. 7
Buy-ins versus UK Government bonds
Gilts Buy-in
Interest rate hedging ✓ ✓
Inflation protection Partial (cap/floor limitations) ✓
Cashflow hedge Partial ✓
Remove reinvestment risk  ✓
Longevity hedge (and other demographics)  ✓
No funding impact ✓ ✓
No accounting impact ✓ 
Management costs c. 10bps ✓
Default risk Government backed
Insurance reserves / PRA
regulation / FSCS
UK Government bonds Buy-in

8. 8
Outlook for UK buy-in growth in 2022
Funded reinsurance
Improvements in the level of
funded reinsurance available
has increased the deal writing
capacity of UK primary insurers
Deferred reinsurance
High demand from the UK bulk
annuity market in recent years
has driven innovation in
longevity insurance for deferred
members, reducing the cost of
buy-out pricing
Funding level
improvements
Rising yields has improved
buy-out affordability for many
schemes
High demand
Demand in the market
continues to be high, with a
number of large transactions
expected during the second half
of 2022

9. 9
Projected UK demand for buy-ins/buy-outs
Average annual demand of £50bn
to 2030

10. 10
Company accounting impact of buy-in
(IAS19)
Impact on If treated not treated as a settlement If treated as a settlement
Balance sheet £Xm worsening £Xm worsening
Other comprehensive income (OCI) £Xm goes through OCI Nil
Profit & loss (P&L) in period ending
after the buy-in
Nil £Xm loss

11. Questions